Majestic's £70 million acquisition of Naked Wines seems to be paying off

The wine startup has 360,000 users who pay £20 a month
to help fund the production of new wines.

The company was profitable in all of the geographic
markets it operates in during the first half of its financial
year.

Majestic Wine's £70 million acquisition of Naked
Wines — an online wine startup that asks its customers to
fund the production of new wines — seems to be paying off just
over two years after the deal went through.

Majestic Wine, which is listed, said on Thursday that Naked Wines
helped its profits rise to around £6.8 million in the first half
of its financial year. Majestic Wine broke even this time last
year.

Naked Wines was profitable in all three of its geographic
markets, according to the results, which cover the 26 weeks
leading up to October 2. The company, which is less than 10 years
old, had adjusted earnings before interest and tax of £4.72
million — a considerable improvement on this time last year, when
it recorded a loss of £2.78 million.

Rowan Gormley, chief executive of Majestic Wines, said in a
statement: "In this half, Naked Wines has demonstrated the
quality of its model."

Gormley added: "It has become a disciplined business committed to
continuous improvement."

Headquartered in Norwich, Naked Wines now has 360,000 customers
who pay £20 a month each to get access to new wines. The majority
of their subscription fee is passed on to wine producers.

Naked Wines managing director Eamon Fitzgerald told Business
Insider that the £20 monthly fee is like a "top up or credit".

"So that gives you access to wines you can't get anywhere else,"
he said. "They're exclusive to us. And that gives you discounted
prices.

Shutterstock/ MaraZe

"The reason we can get discounted prices is we take all of those
£20s and we invest in wine makers' production. Typical wine
makers have to make the wine first, store it all, then hop on a
plane, go to a wine fair, try and find an agent, they'll find a
buyer. There is a lot of cost in the middle there. So actually
what the wine costs to make and what the consumer ends up paying,
the wine maker gets rinsed."

Naked Wines is investing the majority of its user subscription
fees into South African wine makers. But it's also funding wine
makers in New Zealand, California, Australia, and even the UK.

The amount invested varies, but there are some wine makers in New
Zealand that have received around £500,000 from Naked Wines,
while another producer in Kent received £150,000 recently.

Naked Wines has funded the production of 500 types of wine
over the years, according to Fitzgerald. He admits it's risky
business but only two of the variants have spoiled.

Fitzgerald said that Naked Wines is now starting to expand into
other products in an effort to grow its business further.

"The business model naturally lends itself to other products that
we're looking at so we've just launched a craft beer discovery
club, which has 2000 subscribers now in a very short space of
time," said Fitzgerald.

Naked Wines is also offering craft gin, as well as olive oil and
artisan meats.